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School Consolidation Fails to Save

For two years, Gov. Jennifer Granholm has advocated controlling spending in public schools by forcibly consolidating school districts. This year, she wants to pressure districts into consolidating their purchasing and support services.

Granholm is betting on the wrong horse.

The assumptions underlying Granholm’s proposals are that size matters and that bigger is better. Those are reasonable assumptions. Certainly in many other fields, we see that buying items in larger amounts or organizing activities in larger groups results in lower costs.

One striking example is Wal-Mart, which has the buying power of a medium-sized nation. As a result, it can negotiate lower prices for the products it stocks and can streamline its worldwide distribution system to economize still further. Whatever one’s personal feelings about the mega-retailer, it certainly proves that size can matter.

Check evidence first

But public schooling is organized very differently from the retail business. So it would behoove politicians to look at the evidence.

I statistically analyzed the relationship between district size and per-pupil spending in Michigan’s public school system. What I found is that the relationship between district size and spending is weaker and more complicated than many people imagine.

District size explains only about 2 percent of the difference in per-pupil spending, and bigger is not always better. Though per-pupil spending does fall as district size increases up to about 2,900 students, the relationship then reverses itself. Beyond 2,900 students, bigger districts usually spend more per pupil.

When I ran the numbers, I estimated that the maximum theoretical savings from breaking up excessively large districts, about $360 million annually, is 12 times greater than the theoretical savings from consolidations. Nothing close to those numbers is likely to be achieved in practice, though, since that would require redrawing the lines for every district and replacing them all with about 570 new districts of 2,900 or so students each.

Even if that were feasible, the mobility of the population would eventually throw district sizes out of whack once more. Realistically, a policy of selective breakups and consolidations would not put much of a dent in the $17 billion or so spent each year by Michigan public schools.

As it happens, though, there is another factor that explains 10 times more of the variation in district spending than size does: the ease with which district officials can raise a certain amount of money per pupil. And if the ease of raising money largely determines how much money is actually spent, it means that districts are spending as much as they can.

Incentives promote largesse

Why would they do that? Professional advancement in a bureaucracy comes from increasing one’s budget, not from achieving more with less as it does in the private sector. The incentives for school board members (and, to a lesser extent, other elected officials) are similarly counterproductive: Without union support, it is hard to be elected or stay in office, and union support cannot be won without advocating higher spending.

Of course, public officials might have other priorities. They might want to ascertain exactly how much their local communities value education and spend only as much as the public wishes.

I controlled for that possibility as well and found that it explains only about one-fifteenth as much of the variation in spending between districts as the self-interest explanation. (Even after Proposal A centralized budget decisions, it still locked in much of the differences in spending that predated its passage.

So if the governor and Legislature genuinely want to control public school spending, they’ll need to correct the dysfunctional incentive system that drives up spending and replace it with the same competitive incentives that have promoted efficiency among businesses. In a nutshell, the solution to the problem is an education system built on greater parental choice.